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Reason for slump of construction
of new nuclear plants in US

- What is AFUDC? -

Cat: ENE
Pub: 2005
Yoshiro Hatsukade (廿日出芳郎), et al.

Reason for slump of construction of new nuclear plants in US

米国原発新規建設不振の原因 - AFUDC

  1. Introduction:
  2. The reason of slump of N-plants construction in 1980s US:
  3. Background & mechanism of high cost of construction:
  4. Issues on AFUDC system:
  1. 序文
  2. 80年代米国原発建設不振の原因:
  3. 建設費高騰の背景と仕組み:
  4. AFUDCの課題:
AFUDC; CWIP; Construction cost of N-plants; Timing of cancellation;

>Top 0. Introduction:

  • Power Business Accounting:
    AFUDC (Allowance for Funds Used During Construction) is an unique mechanism for electric utility companies in US to maintain low electric rate as well as to keep additional profit until the completion of of new nuclear power plants.

0. 序文:

  • 電力事業会計:
    米国のAFUDC (自己資本利子分)制度は、新規の原発建設によって、建設完了まで電気料金の現状維持と会社利益の追加計上という優遇策の仕組みである。

>Top 1. The reason of slump of N-plants construction in 1980s US:

  • The reason why the construction of new nuclear power plants has slumped since 1970s is mainly enormous increase of construction cost.
    • US unique accounting system called AFUDC would be the main reason; which guarantees to maintain not only to curb the cost but to increase apparent profit for the utility company.
    • Actually the AFUDC system enable easy management of the utility company, causing more difficulty in constructing new plants.
  • Cost increase of new N-plants:
    • In US, construction cost of new nuclear plant is about $4-5K per kW, causing about 20cents per kWh.
    • This high cost could not compete with other alternative energey sources.
    • Nuclear restriction policy by NRC is considered as one of the reasons, particularly since TMI accident.
    • But the technology itself is not the reason; as US offer construction of nuclear plants in overseas by third or fourth cost of US.

1. 80年代米国原発建設不振の原因:

  • 1980年代の米国原発新規建設の不振の原因。
  • AFUDC (自己資本利子分)の制度が電力会社の新規原発建設コストを圧縮し、安易な経営をもたらした主因。
  • 新規原発建設コストの上昇
    • 20セント/kWh
    • 代替エネルギーとの比較
    • NRCの新たな規制方針: TMI事故以降
    • 技術だけが原因ではない。米国は海外の原発を米国国内の1/3または1/4で輸出している。


>Top 2. Background & mechanism of high cost of construction:

  • Electric utility companies considered the construction of new n-plants profitable; keeping substantial profit to cover additional costs caused by the construction by future raising of the electricity charge.
    • The cost of new n-plant is about $200-300M per plant is not so big burden for big utility companies.
    • But such utility companies are obliged to raise the electricity charge after the construction.
    • It is said that half of companies are needed to raise the rate by more than 20%, or even 50% in some cases; actually such abrupt increase of rate will not be so easy considering the impact on the local society.
  • AFDUC (Allowance for Funds Used During Construction):
    • an unique incentive to the utility company to invest using own capital which is regarded to produce a certain interest, which can be added to the construction in progress account as the Allowance for Funds Used During Construction (AFUDC).
    • Such CWIP (capital work in progress) does not affect the electricity charge for the period of construction.
    • Such apparent interest should be covered by rasing the electric rate after the construction.
      • This is paper profit, and paper source of additional dividend.
    • This mechanism seems have a certain ground, but actually due to such as inflation, higher interest, big delay of construction caused serious mistake in managing the company.
      • Ground: today's consumer should not bear the interest expense for tomorrow's power generation.
    • This caused insolvency due to liquidity problems to some utility companies; they are compelled to cancel the construction; which makes impossible to recover the apparent profit.
    • Even other companies who could complete the construction, will find another difficulty; to get approvals for drastic raise of electrical rate.
  • Mechanism of AFDUC (by NRC): (→table)
    • CWIP (Capital Work In Progress) >Top ; Assume:
      • Construction cost: $160M; including $80 by loan and $80 by own capital.
      • Assumed that the total loan is $100, unrest rate 10%, and capital cost 10%.
      • The balance of the construction in progress as of the end of the first year will be $1,760: cash spent $1,600M + AFUDC (interest paid) $80M +AFUDC (own capital interest) $80M
        • The balance of the construction in progress as of the end of the second year will be $1,936: previous balance $1,760M + AFUDC (interest paid) $80M +AFUDC (own capital interest) $96M
        • The balance of the construction in progress as of the end of the third year will be $2,129.6: previous balance $1,936M + AFUDC (interest paid) $80M +AFUDC (own capital interest) $113.7M
      • In the same way, the balance of the construction in progress as of the end of the 10th year will be $4,150M.
        • Thus AFUDC will be the major profit of the term.
      • Forbes wrote an article on this matter in Fe. 1985:
        • "Nuclear Follies", Forbes, Feb. 1985., writing, "At such levels, nuclear power can't compete with oil, much less with coal. That's why, for the U.S., nuclear power is dead - dead in the near term as a hedge against rising oil prices and dead in the long run as a source of future energy.
    • Actual construction cost of N-plants in US: >Top
      • 24/36 projects: more than $2,400/kW; more expensive than coal plants.
        • In US, new N-plant project are promoted by 2 or more utility companies. (in some cases, by 4-5 utility companies)
      • the impact to the electric rate after the completion:
        • 20% up will be required: 30 companies
        • 50% or more up: 7 companies
        • these show how big the impact of N-plants construction costs
    • The ratio of AFUDC in the profit:
      • Long Island Lighting Co. (Lilco): 100% of profit
      • Kansas Gas & Electric: 113%
      • Public Service of New Hampshire (PSNH): 126%
    • The ratio of AFUDC in total facility investment
      • PSNH: 78%
      • El Paso Electric: 75%
      • Louisiana Power & Light, and New Orleans Public Service: 64%
      • Kansas City Power & Light, and Union Electric: 50%
      • Toledo Edison: 49%
  • Problems caused by AFUDC:
    • WA state recently prohibited to include AFUDC in applying raise of the electricity charge.
      • Niagara Mohawk applied 19% raise after the completion of Nime Mile Point power plant.
      • But Unicon Electric need to apply 41% raise after the completion of Collaway power plant.
      • step-by-step raise of the electricity charge is considered by:
        • Kansas Gas & Electric
        • Lilco
        • Connecticut; after completion of Millstone-3 and Seabrook-1 plants.
      • The public restrictive committee limited the raise the electricity charge be consistent with the actual demand; thus excessive capacity portion could no be approved, Eg. in the following cases:
        • Pennsylvania Power & Light; $287M is excessive for Susquehanna-1. Also SUsquehanna-2 will not be approved
        • Houston Lighting; Allen Greek project should be constructed 2 years earlier to be approved.
        • Lilco; Shoreham project: $1,500M was admitted as faulty management, but finally admitted to avoid bankruptcy.
      • Timing of cancellation: >Top
        • if the project was completed one third or half, the company could not cancel the construction.
          • financial difficulties on Consumer Power (CP), Lilco, Public Service of Indiana (PSI), PSNH
        • lack of funds during construction enforces the company to go non-dividend.
          • the company cannot raise funds from the market.
          • or it must abandon the halfway project, which may cause risk of bankruptcy.
          • Washington Public Service Supply (WPSS); debt fault of $2,200M caused by cancellation of 2 plants in the process and 2 plants in the plan.
      • Damage of the states:
        • state tax income from the utility company
        • further lay-off
        • operation of pension funds investing the company.
        • supporting measures by the state:
          • to pay earlier the electric tariff by big user companies.
          • to postpone the due date by construction companies.
      • Major reason is construction of uneconomical N-plants:
        • if all N-plants project completed, then the electricity charge in US would raise 5%.
        • US utility companies have invested $125B, and need to additional investment of $140B by the end of 1980s.
            • N-plants projects are bigger than the space program ($100B), or the Vietnam war ($111B)

2. 建設費高騰の背景と仕組み:

  • 電力会社は新規原発の建設によって、追加コストを将来の電気料金値上げによってカバーして利益確保できることを想定。
    • 新規原発建設コストは2-3億ドルで、大手電力によっては大きな金額ではない。
    • 但し、建設完了後、料金値上げが必要
    • 半数の電力は20%以上 (一部の電力は50%以上も値上げが必要)
  • AFDUC (自己資本利子分)
    • 自己資本で投資した分には自己資本利子を想定しこれを建設仮勘定に計上
    • この計算上の利子は、当期収入と見なされ配当の原資となる。
    • 建設仮勘定は、当面の電力料金には影響しない。
    • この仕組みによって、インフレ、高金利、工事遅延による建設コスト高という誤算を生じる。
    • この結果、電力会社は現金不足から黒字倒産のリスク増大
    • 建設中止あるいは建設完工後の大幅料金値上げという難題が発生
    • この制度の根拠は、"今日の需要かは明日の電力に関わる利息支払すべきでない"
  • 建設仮勘定: CWIP
CWIP (Capital Work In Progress) Unit:$MM
Cash 1,600 Carried forwand 1,760


(interest paid)

AFUDC (own cap interest) 80    
Total 1,760 Total 1,760

Capital Work In Progresss (2nd year)
Cash 1,760 Carried forwand 1,936
AFUDC 2nd-y
(interest paid)
AFUDC 2nd-y
(own cap interest)
Total 1,936 Total 1,936

Capital Work In Progress (3rd year)
Cash 1,936 Carried forwand 2,129.6
AFUDC 3rd-y
(interest paid)
AFUDC 3rd-y
(own cap interest)
Total 2,129.6 Total 2,129.6



  • AFUDCが原因の問題点:
    • WA州
      • 原発完成後の料金値上げ申請
        • 19% Niagara Mohawk
        • 41% Unicon Electric
        • 段階的値上げ; Kansana G&E, Lilco, Connecticut
        • AFUDCの上限査定
      • 建設途中のキャンセル
        • 途中キャンセルのリスク
        • 訴訟リスク


>Top 3. Issues on AFUDC system:

  • To make investment for N-plants reasonable, the followings are needed:
    • Deregulation of restrictive authorities are required by utility companies:
      • more quicker decision
      • more simplified application
      • revise of AFUDC system:
        • AFUDC is particularly supported by easy management as well as equity holders in US.
        • but it should not produce paper profit by AFUDC.
        • it should be some kind of "allowance for doubtful accounts"
          • Comment: equity contains its own indigenous risk factor. Then why its risk should be covered by separate allowance.
        • More reasonable investment plan, considering neutral comparison of energy sources.
      • Too small scale of utility companies in US to promote N-plants.

3. AFUDCの課題:

  • 対策:
    • 規制当局による規制緩和策
    • AFUDCの修正
      • AFUDCは経営者と米国投資家の要望
      • 架空利益は生むべきでない
      • せめて貸倒引当金にすべき
      • 小規模電力では原発投資は無理
    • コメント:
      • Equityは本来リスク込みであるのになぜ別途引当金を設けるのか?
  • This report, which was deleted today, was probably made as a research report of the overseas situation assigned to the author by the Central Institute of Electric Power Industry of Japan.
  • Japanese various incentives and subsidies for construction and operation of N-plant are more unconcealed policies than AFUDC.
  • N-plants are getting more critical controversial issues in Japan, particularly after the 3.11 disaster of Fukushima-1 N-plants.
  • More reasonable comparison of pros & cons of N-plants is urged, considering ultra long-term impact not only management of utility companies but also various social impacts beyond generations.
  • 本報告書は、おそらく電力中央研究所の委託調査報告であろう。(現在削除)
  • 原発建設と運転については日本の様々な優遇策の方がAFUDCよりも露骨な政策である。
  • 原発を巡っては、3.11福島原発の事故以来、日本では厳しい論争になってきた。
  • 原発は超長期の電力会社への経営への影響に限らず世代間の社会的影響を考慮して、理性的な功罪議論が必要である。

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